All posts tagged economics

A statement by Robert G. Ingersoll, American lecturer and free-thought spokesman. This piece is an excerpt is from Book V called “Revolt.” This chapter pertains to “The struggle to abolish injustice; the battle cries of the new army which is gathering for the deliverance of humanity.”

Whoever produces anything by weary labor, does not need a revelation from heaven to teach him that he has the right to the thing produced.

Every once in a while a news headline on Yahoo’s home page catches my eye, mostly because it seems completely ridiculous. Yesterday was no exception when I saw the ominous headline “Restaurants in Seattle Going Dark as $15 an Hour Minimum Wage Looms“. A scary headline for an article with content that shouldn’t scare anyone that made it past kindergarten.

When it comes to right-wing scare tactics on minimum wage increases in general, one is forced to accept a fallacy that would crush their argument if they ever had to address it. The fallacy is this: people making minimum wage would not spend the extra money they would make from a wage increase. In other words, the money would simply be paid to them and then find its way into a black hole, never to be heard from again. There would be no increase in consumer spending on basic products or other goods and services and no increase in the sales and production of residual businesses not paying their workers minimum wage. The article linked is no exception as it feeds the reader the fallacy and makes no mention of the reality of minimum wage increases.

Another right-wing tactic is to always focus on restaurants and how they will fail if the minimum wage is ever increased. This is nothing more than using a convenient target to try to sway the uninformed. Depending on what statistics you use, the failure rate of restaurants in the first three years is generally accepted at roughly 60%. In other words, most restaurants will fail regardless of the minimum wage so its an easy but deceiving target for the right to use when arguing their absurd points.

While this is no surprise, there is another snippet of info given in the piece that deserves further analysis. The article gives us some numbers that seem scary on the surface when read:

Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”

“He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs). The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.

Gasp! The owner only making $28k a year on a $700k a year restaurant? Sounds horrific…unless we choose to do some math. Let’s play this game.

$700k divided by 365 days gives us an average daily revenue of $1918. Let’s assume the restaurant is open on average 12 hours a day (10 am-10 pm, for example, lunch and dinner). $1918 divided by 12 gives us roughly $160 per hour. Assuming the average customer spends $10 per meal and drink, we get 16 customers per hour. If a restaurant in a major city like Seattle is only getting that many customers per hour, they are clearly on their way to closing their doors anyway. But wait, there’s more.

As is noted, 36% of funds are devoted to labor. 36% of $700k is 252000. A 36-hour per week worker (6 days, 6 hours per in this scenario) making Washington’s minimum wage ($9.47) makes $17,725 a year. $252k divided by $17,725 gives us roughly 14 workers. With a 12 hour day, you would need a minimum of two workers per position. That gives us 2 hosts/hostesses (assuming you need it), 2 cooks, 2 kitchen preps, 2 dishwashers, 1 additional manager, and 5 servers (who apparently make the state minimum wage in Washington). Here’s where an important reality comes to light in their numbers given.

With 5 servers, you would have 3 working half of the time to split the previously derived 16 customers per hour, which is completely ridiculous in terms of being grossly overstaffed. Assuming the 16 customers are 8 couples dining together, this means a little less than 3 tables per hour per server. As someone who was once an atrocious excuse for a server in my earlier working days and can speak from experience, a server can easily handle 6-7 tables per hour without breaking much of a sweat. And that’s if you’re terrible at your job, like I was.

In other words, the restaurant in the example given is clearly overstaffed and badly run on top of not getting enough foot traffic in the first place. If we were to bring the server situation down to a more appropriate level, what happens with the owner’s $28k a year takeaway on a $700k restaurant? What if you take away 1 or both hosts/hostesses because they aren’t needed due to the light customer traffic? If we take out 4 workers, we suddenly get an additional $70k. Obviously, some of this would go to the additional manager and (hopefully) some raises, but the owner is likely taking a good chunk of this home. What happens to that $28k per year? Exactly.

If the right wants to scare the country into believing the minimum wage should not be increased or should go away entirely, they should probably use a better hypothetical example than a badly run, overstaffed restaurant with too little of a customer base to survive in such a big city.

A June 1st op-ed by Paul Krugman that argues that inequality is rising in the Western World, and especially in the U.S., while debunking Chris Giles’ (the economics editor of The Financial Times) critique of Thomas Piketty’s best-selling economics book “Capital In The 21st Century”.

Gallup’s annual Values and Beliefs poll was released this week with the results showing the gap between those identifying as conservative and those identifying as liberal is closing greatly. In particular, the gap on economic issues shrank quite a bit, as reported by Al Jazeera:

With respect to economic issues, 42 percent identified as conservative, 34 percent said they were moderate and 21 percent identified as liberal. While conservative economic identification remains dominant, the 21 percent advantage over liberals is much lower than in 2010, when the conservative advantage was 36 percent.

The 21%, however, seems artificially small, especially when we consider views on many economic issues. It seems clear that much of what is actually liberal policy is not recognized as such. The example of the older gentleman at the town hall meeting angrily saying the government needs to keep its hands off of his Medicare comes to mind here. Let’s take a look at some polling data to drive the point home.

Progressive Taxes on the Wealthy

61% believe the rich are taxed too little, a number that has rarely fallen below 60% in the past two decades. This is a clear indication of two liberal perspectives. One, a majority are supporting a progressive tax system over the idea of a flat tax, which is just another give away to the wealthy. And two, a majority believe some taxes are not high enough, a position commonly demonized by the right.

Minimum Wage

Government Job Creation

Over 70% are in favor of the government spending more to create jobs in areas like infrastructure, something that is easy to believe people have taken for granted at this point (roads, bridges, clean water, etc.) despite falling on the liberal side of the fence.

Saving Social Security

Whether Social Security was considered a social or economic issue in the Gallup poll, I’m not sure. And it goes without saying, it’s socialism and a liberal position itself, one that a large majority of Americans favor. But it has some small long-term problems that can be fixed rather easily and this is where the liberal economic position wins again and wins by a lot. The two most strongly supported ideas to keep Social Security stable pretty much for good are both liberal: raising the payroll tax or lifting the payroll tax cap (both 60+% in favor).

Free Trade

You have to dig slightly deeper on this issue to get the reality, which is heavy support for the more liberal side. Taking a look at China, people might be okay with free trade but in a more conditional way. Over 80% support getting tougher with China on trade which could easily be coupled with large majorities wanting the U.S. to push China harder on human rights and environmental issues.

Business Regulation

In this case, pluralities (not necessarily majorities, in the interest of fairness) favor regulation on business and believe the government should carry out this task. In addition, a plurality believes regulation on the financial industry did not go far enough after the 2008 crisis. While these might be just below majorities, the numbers are still well above the 21% of people in the Gallup poll identifying as liberal.

Deficit Cuts

In the debate on reducing the deficit, liberal thought wins again. Large majorities favored keeping liberal programs like Social Security and Medicare (69% in favor) and spending on the poor (59%) as is while asking for cuts to a conservative favorite, military spending (51%).

Wall Street Bailouts

This one is a little tricky for a few reasons, but let me explain. First off, the bailouts are a liberal action since conservative policy is (and initially was) to let them fail and let the economy crash into complete oblivion, which would have been catastrophic. Second, most people aren’t going to pay too much attention to this area of regulation unless the excrement hits the fan, as it did in September of 2008. Third, and related to the last point, public attention to economic issues in September 2008 had double from the year before so the attention at the time of the bailouts was certainly there. And what did all that lead to: 57% in favor of the government stepping in to keep the market from getting worse and only 30% opposed. The point here is when things go bad in the economy, the public looks to the government to stop the bleeding and is okay with a heavy government hand in the marketplace when necessary.

21% of the public identifying as economically liberal-minded certainly seems low according to all of these poll numbers. We have to assume that number will likely grow as more people become aware of what is and what is not liberal economic policy and become less afraid to identify with it.

But that isn’t the really despicable attack by the Koch brothers group. Take a look at their page at http://www.strongerdetroit.com/ (disgracefully named, as usual). You’ll see this nugget of info:

Per capita state revenue sharing payments are over 3x what other cities receive. In 2010, Detroit received $335 per capita in revenue sharing payments compared to $96, the average amount per capita all other cities over 50,000 in Michigan received.

Clearly, those greedy people in Detroit just upped their piece of the Michigan pie in the years leading up to this bankruptcy until they were all happy, fat cats.

Between 2000 and 2010, inflation adjusted state revenues per capita declined by 13.7 percent in Detroit, while in Buffalo they increased by 45 percent. In the recession period alone (2007 to 2010), state aid to Detroit went down by 8.2 percent, but went up by 7.2 percent in Buffalo. Thus a big difference between these two structurally similar cities is the economic and fiscal environment and fiscal choices made at the state level. Had New York treated Buffalo in the same way fiscally as Michigan dealt with Detroit, Buffalo, which is already teetering on the edge of fiscal crisis, might have been forced to declare bankruptcy as well. (Emphasis added)

But that doesn’t tell the whole story. The per capita spending is still three times higher and some might be angry by this. Unless they realized why.

Detroit’s poverty rate is a whopping 38.1%, according to the Census Bureau, more than double the Michigan state rate of 16.3%. Add on the fact that Detroit is Michigan’s largest city by a lot (more than three times the size of second place) and the picture starts to come together. But just to drive the point home, let’s give an example to further explain the disparity.

Suppose you have two cities in a state and both have a population of ten people. City A has one person (10%) living below the poverty line. City B has three people (30%) living below the poverty line. If the state spends $100 per person in various ways on people below the poverty line (education, unemployment insurance, food stamps, etc.), then City B would be receiving three times more ($300) from the state than City A ($100).

The reason for Michigan’s spending on Detroit is not very difficult to figure out.

The reason the people of Michigan might fall for the Koch brothers heinous attack on the city’s bankruptcy settlement is also easy to figure out: brainwashing.

Another great article in the NYT that was written by Annie Lowrey explains that though many poor families have more material wealth in terms of TV’s, smartphones, and an Internet connection compared to past times, they are becoming worse off in terms of economic inequality.

She explains that the reason for this “material abundance” for the lower SES population is due to the falling prices of goods as a result of global economics. But when it comes to expenses critical to moving out of poverty such as education costs, healthcare, and minimum wage jobs, their outlook is bleak.

A good piece by NYT op-ed columnist, and Nobel Prize Winner, Paul Krugman on how our government’s investments in making things easier for high finance Wall Street swindlers has little return for the ordinary American.

The main point here, as I see it, is that if Wall Street is making big money it does not equate the same thing for the rest of us.